Source: Auckland Council
Our ‘books’ are not under lock and key. They’re simply so large, given the sheer scale of an organisation that returns around $8 billion in annual revenue for Auckland, that they can’t easily be delivered in a neat bundle.
How do we address this? Every year Auckland Council meets its financial disclosure obligations as a publicly listed organisation, delivers a budget and a detailed annual report. We publish contracts awarded and supplier spend information monthly, issue quarterly financial results and report financial updates and decisions to our Governing Body and local boards multiple times each month.
We consistently achieve high credit ratings and meet the expectations of the Office of the Auditor General. This is the same expectation that every council must meet but, because of the scale and complexity of our organisation, comes with increased rigour and more checks and balances due to our NZX listing.
In fact, we just won an award for our performance, transparency and being honest and “true to our label”. I am incredibly proud of how as an organisation we strive for transparency. All of this is consistently delivered by our team of highly skilled and extremely competent finance professionals, led by a Group Chief Financial Officer with experience across the private sector as well as central and local government. This team is our ‘control’ department, our Treasury, with independent checks and balances built into their everyday processes.
Those everyday processes are based in policy that has been agreed to after engagement with our elected representatives, who endorse and vote on our financial strategy, which includes them endorsing our debt parameters. We also have an independent treasury management steering group and independent Audit and Risk Committee.
Since its formation in 2010, Auckland Council has achieved cumulative operating cost savings of $2.4 billion. This began with the government-initiated amalgamation of eight former councils and a myriad of satellite business units; duplicated accounting and business management systems; and more staff than were needed at the time.
Through a dedicated programme of rationalisation, that maelstrom of incongruent systems and replicated business units now resembles a single operating system. This was guided by Section 17A of the Local Government Act, which sets out the expectations of cost-effectiveness and delivery on community needs for all local authorities in Aotearoa, and resulted in a value for money workstream that has consistently delivered on annual savings targets, set (and achieved) ambitious efficiency targets and currently sees us on track to achieve the enduring $90 million annual savings target we have set ourselves, this year and next – despite being presented with every possible challenge a debilitated national, indeed global, economy can throw at us.
Without the achievement of these savings, rates would need to be 14 per cent higher than they currently are.
This sits alongside the fact that Tāmaki Makaurau in the lead up to 2010 was vastly different to the region we see today. We have welcomed more than 300,000 new residents – that’s the populations of Hamilton and Dunedin combined – and expect to hit 2.4 million by 2050.
Yes, our staff numbers have increased, but in the areas that need them most, like our building consents and compliance functions, where the total number of new dwellings consented in 2021 was 20,384; 57 per cent above the 2004 peak of 12,987 and rising almost continuously since 2011. These are also areas where cost recovery is a major component of the business model. Where possible, including in the regulatory area, we have created a scalable workforce so that we can match demand with resource requirements.
Much is made of what Auckland Council staff earn. We are currently working in one of the tightest labour markets this country has seen in years. With 3.4 per cent unemployment and the knock-on effects of the pandemic, skilled professionals across the public and private sectors have choice and bargaining power. Yet we consistently stack up against other public sector organisations.
In fact, our wage and salary profile is lower than public sector comparator organisations and substantially lower than large private sector companies. A total of 1.39 per cent of our people earn over $200,000. The 2021 figures for the public services workforce generally saw 2.19 per cent of employees in this category.
Prudence and fairness is something to be proud of when it comes to remunerating employees, exploitation is not. We are a living wage organisation, we have worked hard to create pay equity for our people in lower bands and are working towards greater equality in our gender and ethnicity profile.
And then there’s where our people work. Auckland Council purchased its Albert Street building in 2012 for $104m; today it is valued at $250m and houses around 3,000 council staff that work across the central isthmus of Auckland. It serves as a home base for our political leadership, management and office staff, as well as frontline workers like building inspectors, biosecurity officers, scientists, event facilitators, planners, engineers, parks and community facilities staff.
We’ve been prudent with the refit, that’s why the remnants of the 1990s banking world remain on some floors and we run a smart-desking system to maximise the efficient use office space. We no longer have the legacy council buildings and additional rented office space across the central city that we inherited upon amalgamation. We have reduced our overall corporate property footprint by more than 50 per cent, brought in close to $200 million in proceeds from building sales and avoided significant maintenance and ongoing costs from these older buildings.
Many other councils generate between 60 and 74 per cent of their income from rates; for us that figure is around 40 per cent. We bring in a significant amount of revenue from fees and charges and other earned income. Then, because of our size and prudent financial management, with strong credit ratings, we can raise debt.
Debt is used to spread the cost of capital investment and asset management across the generations that use it. It’s not just debt for debt’s sake, but to create equity across generations and fairly manage the impact on the ratepayers of today. Debt increases are due to the need to invest in further infrastructure to support the region. In 2028 when the council is fully funding depreciation there will be less reliance on debt as a funding source. We use a range of financial management and treasury options to ensure that we work well within our debt limits to ensure we have the debt capacity to respond to unforeseen events such as pandemics and natural disasters.
While we are expecting our debt service costs to rise, due to a decreasing level of interest rate hedging and the higher overall levels of borrowing, around $9 billion of our debt portfolio, or roughly 75 per cent at current levels, is in a fixed hedge for the next five years. Our projected interest costs for 2023/2024 is $473 million, or $560 million without the sell down of the Auckland International Airport shares, and we are not projecting to hit even $700 million until 2029/2030.
Even given the population growth, the council’s increased funding of depreciation, and the impacts of inflation, our region’s cumulative rates increases for the last decade has being considerably lower than Wellington and Christchurch and remains comparable when it comes to rates affordability.
Over the last few weeks we have provided thousands upon thousands of lines of financial data to the members of the Expenditure Control and Procurement Committee, as well as a tool that provided context and an easy interface. They were understanding when we communicated a delay in providing some additional data. This was due to our team responding to the most significant weather event Auckland has faced in this council’s existence and the need to provide elected members with the budget impacts of the storm events.
It is therefore disappointing to read criticism of our approach. I want to provide reassurance that, as is our remit, we are here to work alongside our decision makers and to offer them as much insight as possible into the largest and most complex local authority in Aotearoa so that they can make informed decisions on behalf of the people of this region.
My team and I remain committed to achieving the best possible outcomes for Aucklanders, working with our elected members to continue to drive increasing efficiency, simplify what we do and how we explain performance.
